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Macau Dances the Chinese Tango

By Ken Adams, CDC Gaming Reports

February 27, 2019 at 6:31 pm

Gaming revenues in Macau have stagnated lately. It is difficult to put a finger on the exact cause partly because the city is a mixture of government systems. Macau is unique in many ways; it was a Portuguese trading post for 300 years until it became a Portuguese colony in 1887. Gambling has been legal in one form or other since circa 1850 and has been traditionally controlled by Chinese criminal groups. In 1999, Macau was returned to Chinese control. Its government is a mixture of Communist Chinese and a homebred kind of democracy and a semi-capitalistic economy. In 2001, China decided to allow someone other than Stanley Ho, who had controlled it for 40 years, to obtain a license and open a casino. In 2004, the first of the foreign casinos opened. The issuance of licenses and casino regulations in Macau are left to the local government, with Chinese oversight.

Although China says it is one country with two systems, the mainland is slowly pulling Macau closer and closer into its government and economy. China has certainly used its influence to force casino operators to develop true resorts rather than casinos. China has grand plans to use Macau has a magnet for international travel and foreign currency. But China moves slowly and carefully; and it actions are not visible. That may change in 2020 or 2022 when the first of the original casino licenses comes up for review and renewal. In the meantime, Macau is like other casino jurisdictions in the world. Forty one casinos operate in the city. The largest and most successful casinos are operated the Sands Las Vegas, Wynn Resorts, MGM International and Melco. For those companies, Macau has been a game changer as Macau produces the majority the corporate revenue.

Las Vegas is the gaming capital of the United States, but Macau is the gaming capital of the world, generating nearly six times as much gaming revenue as the Las Vegas Strip. The reason for Macau’s success is of course its proximity to Mainland China and the 1.6 billion Chinese people living just a hop, skip and jump away. In the fourteen years, since the Sands opened as the first foreign casino, gaming revenue in Macau outpaced the rest of the world.. And as the revenue increased so did the investment in new casino resorts. The only limiting factor to the growth of the city’s casinos has been the government of Communist China. When the Chinese government changes policies it can have a major impact on Macau. In June 2014, Chinese President Xi Jinping initiated a crackdown on corruption in China; apparently many gamblers were caught in the Xi campaign because gaming revenue in Macau dropped forty percent in two years. The decline continued to until 2017 when revenue started growing again until January 2019. In January gaming revenue in Macau dropped by five percent.

The forecasts for the rest of this year are for very slow growth, if any. The Chinese economy has slowed and there is that nasty trade war. Diversification is also a factor; China has encouraged the casinos to diversify. China wants Macau to be more than a gambling city and to that end has pushed resorts to add more and more amenities. It is working as China hoped. More people are coming to Macau all of the time, but unfortunately for the casinos they are spending less on gambling. There is yet another variable in the mix and it too is the result of changing Chinese policies. China’s social credit system ramped up in 2018 with over 36 cities testing it. In 2018, 15.5 Chinese citizens were denied airline tickets and 5.5 million people were refused tickets to travel by rail. Others were denied promotions, loans, permission to move and exit visas. The social credit system penalizes people for social “misdeeds” like unpaid fines and taxes and a variety of other “offenses.” One suspects that at least some of those 23 million “bad social credit” people were stopped from going to Macau.

China still pays lip service to Macau’s independence, but it is an illusion. The Chinese government carefully orchestrates the economy in Macau. But even when China does not meddle in the affairs of Macau, its economy does. The casinos in Macau would not exist without the gamblers in China. For the would-be gamblers to have the money to gamble they need a source of income and the freedom and means to travel. Any way you slice it the casinos in Macau dance to a Chinese tune, a tune that is played by a communist orchestra that is directed by Xi. It is probably a misnomer to call the dance a tango. It is more of a march.